New Orleans City Council President Stacy Head is proposing major changes to the city’s main employee pension system that could result in lower benefits for future retirees. Her pitch was met with resistance from at least one member of the retirement systems’ board of trustees, as well as employees and retirees in attendance at Wednesday’s board meeting.
However, Head said, the New Orleans Municipal Employees Retirement System, which covers city employees other than police and firefighters, may well need the adjustment to meet its obligations.
Head’s proposal comes at a time when the city is also considering major changes to its firefighters pension system through a committee formed earlier this year by Mayor Mitch Landrieu.
At the meeting, Head made her case for a change to the system. She noted that most of the employees in attendance were either retirees or nearing retirement age and likely would be unaffected by any proposal on the table.
“You’re going to get yours, no matter what happens,” Head said. “It’s the people coming behind you who are truly in jeopardy.”
Earlier this year, Head asked the system’s actuary to calculate the effects of five overhaul proposals, including changes to employee retirement eligibility age and benefit calculations as well as the elimination of cost of living adjustments through so-called “13th check” bonuses during years in which the system’s investments perform at a certain level.
In an email to The Lens, Head said that all options are on the table. But what appears for now to be the leading proposal is called Social Security integration. Unlike other systems, including the city’s firefighters’ pension system, city pension members members pay into Social Security and are eligible to receive Social Security benefits. The proposal would reduce the pension system’s payment by 50 percent of Social Security payments once a retiree becomes eligible.
Though any change to the benefits structure would not apply to retirees or employees nearing retirement, employee Sam Stoute said he was troubled that some current employees may see their benefits reduced.
Whether the cutoff is 20 years of city employment or 10, he said, “You’re going to have some people in and some out.”
Stoute said any change should only apply to new hires.
He said that under state law, pension benefits are treated as a contractual obligation. Reductions for current employees, he said, would be “unfair, probably not legal — at least it shouldn’t be — and unacceptable.”
Board member Courtney Bagneris, who represents current employees, said she worried the plan would especially hurt the city’s lower paid workers.
Several attendees questioned the need for the change, given the system’s relative health.
Whereas the firefighters’ pension system is funded at about 20 percent of its liabilities, according to a recent report by the Kapoor company, a consultant hired to guide the effort, the Municipal Employees Retirement System is nearly 75 percent funded.
“I don’t understand why this is being done,” retiree Randolph Scott said. “Our pension system is not in trouble.”
Head, however, said the system is in trouble.
“It’s a bit below 75 percent as I recall the last time we got a presentation. This is not healthy,” Head wrote in an email to The Lens. That’s down from a pre-recession level of 106.5 percent, according to the system’s 2013 audit. In a 2012 report on local public pension systems, the Bureau of Governmental Research noted that the national standard is 80 percent, but actuaries recommend that all plans be 100 percent funded.
A report by system actuary Michael Conefry said that the plan would reduce total retirement benefits by about $5,000 — about 18 percent — in 2014 dollars, for an employee who worked for the city for 35 years and made $20,000. A 35-year employee who made $117,000 would see his benefits reduced by about $16,000, or 11 percent, annually.
It’s unclear that the change would benefit the system greatly. According to the actuary’s report, the change would increase the funded ratio by three-tenths of a percent if it applied to members with as much as 15 years of service, and reduce contributions by about $1.6 million per year, based on 2014 levels. If only applied to members with less than five years, it would increase the funded ratio by one-tenth of a percent and result in about $640,000 in savings.
The city pays about $20 million annually into the system, and employees contribute about $6 million. Because employees pay 6 percent of their salaries and the city’s contribution varies depending on annual actuarial reports, the city would likely benefit from the savings.
Head said she hopes to bring in the Kapoor Company, the same consultant hired by the firefighters pension working group, to perform a second analysis. She also said she hopes to form a similar committee to recommend potential changes to the city pension board, which would then pass them along to the City Council.
“I am recommending an inclusive structure something akin to that occurring regarding the firefighters. Basically, the third-party expert gathers the facts and presents them. The expert then proposes alternatives that have worked elsewhere that would improve the long-term health of the plan. Then, the debate begins about the changes that the various interest groups (current employees, taxpayers, administration, council…) want to make,” she wrote.